The consumer never buys goods directly from the producers of the good as it is practically impossible for the producer to sell goods directly to the consumer and that is where retailer come into play because retailer acts as a link between producer or wholesaler of the good and consumer of the good. Retailers refer to those individuals who buy the products from wholesalers and sell those products directly to the end user that is the customer by taking a fixed percentage as profit from the sale of goods. In order to understand more about retailers, one should look at the advantages and disadvantages of retailers –
Advantages of Retailers
Cash Business
The biggest advantage of retailing is that it is a cash business implying that a retailer will always sell goods on cash to its customers and since wholesaler gives goods to retailers on credit of 30 to 60 days it is the retailer who enjoys liquidity as he or she is selling goods in cash and getting credit from wholesalers.
No Liability
Another benefit of the retailer is that he or she has no liability towards the customer because if the product is defective then it is the producer who will bear the loss of replacing the product. In simple words, retailer is immune as far as a liability from a customer point of view is concerned as he or she is the mediator between the producer and the consumer.
Less Initial Capital and Space
Another benefit of retailing is that one can start this business with less initial capital as it is not a capital intensive business besides unlike wholesaling which requires a lot of space so as to store goods in case of retailing one does not require that much space as retailer can get the goods whenever he or she wants from the wholesaler which negates the need for having large space.
Disadvantages of Retailers
Fixed Margins and Low Scale of Operations
The biggest problem with retail business is that profit margins of this business is fixed which ranges from 5 to 20 percent depending upon the brand of the product which retailer is selling and also unlike wholesaler who can expand business in order to achieve economies of scale in case of retailing such thing is not possible.
Requires Good Location
Another problem of retail shops is that good location is one of the factors in order to be successful in retail business and if you are the owner of building than it is not much of a problem but if you take shop on rent than you have to pay high rent in order to take shop on rent at good location. Hence one needs to keep location factor in mind before deciding to be a retailer.
Constant Supervision and Control
In case of retail business one has to wait for customer to come to the shop and hence one needs to be constantly present in the shop which makes it a limitation of retail business besides since it is a cash business one cannot delegate the work to employees because where cash is involved one cannot trust all people blindly.
As one can see from the above that retailing has advantages as well as disadvantages and that is the reason why one should carefully read above points before deciding whether one wants to be in retailing business or not.